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Dean Singleton’s Speech In Sweden: 19 Of The Top 50 US Newspapers Are Losing Money

Last week Dean Singleton, CEO of MediaNews Group (which owns the Denver Post, San Jose Mercury News, and 55 other American dailies) gave a remarkably candid speech on the state of the American newspaper to the World Newspaper Congress in Sweden.

It’s drawn a bit of attention in the European press, but not so much in the US. Kind of strange, really, when you’ve got the CEO of one of the largest newspaper companies saying stuff like this (emphasis mine):

In the future, there will be two categories of newspapers. Those that survive, and those that die … By my estimate, as many as 19 of the top 50 metro newspapers in America are losing money today, and that number will continue to grow.

(snip)

Too many whining editors, reporters and newspaper unions continue to bark at the dark, thinking their barks will make the night go away. They fondly remember the past as if it will suddenly re-appear and the staffing in newsrooms will suddenly begin to grow again.

Well, as a former journalist, I also wish for the past, but it’s not coming back. The printed space allocated to news and newsroom staffing levels will continue to decline, so it’s time to get over it and move to a print model that matches the reality of a changing business.

He’s actually right on this point. But I wonder what many major newspapers will look like once they go through the digestive process that they’re going though.

In the past two weeks, two executives who know an awful lot about newspapers—Singleton and Rupert Murdoch—have said that some major metropolitan newspapers won’t make it.

That’s big.

The entire speech, which is worth reading, is after the jump. I’ve bolded some parts I find especially interesting.

61st WORLD NEWSPAPER CONGRESS

Göteborg, Sweden

By: William Dean Singleton

June 2, 2008

Thank you for once again inviting me to address the World Association of Newspapers. I spoke to you at the 2003 meeting in Dublin. My speech was followed by a presentation by Hollinger’s Conrad Black, who gave us all a lecture on arrogance, of all things.

Unfortunately, Conrad couldn’t be with us today, but I wish him all the best in his new home in Florida.

And I’m sure the challenges for all of us today insure that none of us needs a lecture on arrogance. If we ever were arrogant, we’re surely not today.

We in the newspaper business must begin any conversation today by talking about the future. The present isn’t as much fun as the past, and many today dispute that we even have a future. I hope they’re wrong.

Novelist James Baldwin once wrote about the future being like heaven: “everybody exalts it, but no one wants to go there now.”

Well, we in the newspaper business need to go there, and we need to go there now.

Let’s see if you can guess what industries I’m talking about when I talk change.

The first industry has lost half its market share in the U.S. in the last 30 years and now has less than 50% share.

In the second industry, the two major players have become one and share of sales in the sector have declined by 42% over the past 10 years.

And finally, most of the major players in the third industry have gone bankrupt, restructured, started to make money again, and now are losing billions again.

Any guesses? Yes, autos, department stores and U.S. airlines.

Competition in these industries has resulted in a greater range of product offerings of higher quality, at lower prices to the consumer, and has sharpened the performance of industry participants.

Companies in these and many other highly competitive industries cannot let their guard down, but must continually reinvent themselves to better serve consumers. Their diligence in developing new products and their effectiveness at bringing new concepts to market are a matter of survival. And even with all their changes, survival is still a question mark for all three industries.

For too long, we in the newspaper industry have been immune to the risk of survival and to the urgency required when facing stiff competition. Suddenly, risk of survival is a regular topic of discussion.

Are we up to the challenge that strong competition brings when it is pervasive and incessant? Can we act with urgency? Can we innovate and take on the risks associated with new product introduction? Can we manage our core legacy newspaper business more efficiently while we grow on new fronts, and can we attract the talent necessary to succeed? Can we show the leadership, vision, strategic direction and inspiration required to move our businesses in a winning direction?

The answer to these questions, I believe, is a questionable yes.

Before I review the state of our industry and what we at MediaNews Group are doing to navigate into the future, I want to talk about what I believe contributes to the culture of our company, from its birth a quarter century ago, to now being the fourth largest newspaper company in America.

It starts with passion and commitment at the top. I as the company’s founder believe in the business we are in, and in our ability to continue to improve on what we are doing and to grow….no matter how our environment may change.

MediaNews Group is not distracted by the demands of public ownership nor by the allure of diverse and unrelated business units, which might appear to provide an easier way to growth. You will not hear me say to our employees that they can expect reduced commitment to or investment in our core business because some other product line or business segment is suddenly the flavor of the day. With MediaNews, it all starts with commitment to, passion for, and a tireless belief in our core business: gathering news and selling advertising.

Our corporate mission statement for years has been as follows:

“To be the leading provider of local news, information and services in our strategically located markets by continually expanding and leveraging our news gathering resources. We will proactively identify and develop strategic partnerships and relationships to enhance our content and services while integrating our content for dissemination across all available distribution platforms in our markets, starting with the local newspaper. We will continually strive to improve our profitability, while being a strong community partner and strengthening our work environment for our employees.”

Throw into the mix a spirit of entrepreneurialism, fast decision making and a high degree of tolerance for disagreement, internal tension, self assessment and questioning as well as being very rational and analytical about everything we do.

Yes, these qualities of our culture are hard to duplicate, but I believe they are essential to our success. They allow us to maintain a focus on what is crucial to our success in an industry which has become increasingly competitive. If a company does not practice these attributes, I believe it will struggle to succeed in our fast changing environment. And survival is not guaranteed.

You all know how we as an industry have arrived at this point. Despite the growth of radio beginning in the 1930’s and TV in the 1950’s, we continued to enjoy growth in revenue even if our market share declined.

Life was good. But in the 1990’s something began to change for us.

Was it the proliferation of cable news channels, the inexorable trend toward two-wage earners per household working outside the home, time pressed lifestyles, the emergence of the Internet, or the explosion and fragmentation of all forms of media? Was it the consequence of consolidation in our industry, combined with public ownership and subsequent pressure from institutional and large shareholders? It was all of these factors.

Let’s take a look at the state of our industry, both good and bad. According to the Newspaper Association of America, U.S. print newspapers still reach 51% of all US adults on a daily basis, ranking us as the single largest medium in virtually every market on any given day. During the course of a week, 74% of all adults read a newspaper. The reach of our websites extends this reach by 5 to 10% and newspaper websites now reach 37% of all Internet users.

Advertising revenue for the industry is estimated at $43 billion, or 18% of all US ad spending, and our share of local advertising is twice that.

Average profit margins for the newspaper industry are approximately 19%, and while at times it has been painful, we have been extremely resourceful in finding ways to protect our financial health. Despite what you read in the press, we’re not a dead business ... at least not yet.

I would be willing to bet that the industries I talked about earlier would give their eye teeth to be operating from the position of strength which we currently occupy.

In fact, I will go a step further. It would be an embarrassment to us as stewards of this industry if we cannot leverage the strengths we currently enjoy into successful models for the future.

As you know, we provide a broad and complex range of advertising services to a very diverse set of advertisers who are constantly evolving, evaluating what is best for their businesses and updating their strategies.

Let me discuss the changes in our advertisers which have had the greatest impact on our industry. The merger of Macy’s and May Company resulted in substantial consolidation of department store print spending. The merger of Sears and K-Mart had the same effect. Newspaper advertising from all general merchandisers has declined by 20% across the industry over the past 5 years, and within that category, department store spending has declined even more steeply.

In the national advertising category, revenue is down almost 30% from last year. In better times, we enjoyed brand advertising from General Motors, Ford and Chrysler. We also benefited from the wave of growth in telecommunications products, such as cell phones, long distance services and Internet access. But as you know, the telecom industry has succumbed to a surge of consolidation, hitting hard our ad revenue form this important category.

And we can’t highlight our challenges without mentioning that circulation has declined by an industry average of 2 to 3% per year over the last 5 years. Also, while we have been effective at building Internet audiences, our online revenue growth has not matched that of our more successful Internet competitors.

But the largest driver of pain has been the movement of classified advertising from print to online. While newspapers are capturing a portion of that online business, we’re capturing it at a fraction of the rate once enjoyed by print.

And if we weren’t already hurting enough, the U.S. economy ... and perhaps the world economy as well ... is in the beginning of a recession which appears to be wider and deeper than any in our lifetime.

Now, even our best remaining print advertisers are slashing spending because their sales are hurting. And even online advertising ... as we’re now finding out ... slows when the economy gets weak.

It’s the perfect storm, worse than anything we’ve ever seen before.

So what are we at MediaNews doing to address the challenges, but also to capitalize on the many opportunities ahead of us? And what do I expect of the executives of our company now and in the coming years?

First, we are looking at our company as comprised of three key business units:

• Our core newspapers

• Our internet operations

• Our targeted niche products and publications

We continue to innovate in our core newspapers. There are still many ways to grow our audiences— compelling and innovative content, better design, a fierce dedication and focus on intense local news and information, more sophisticated marketing and promotion, and new platforms for distribution such as electronic editions.

We are also taking a hard look at how we operate. We want to preserve what is important to readers while operating with intense efficiency in producing and distributing our newspapers. We have been very successful at consolidating manufacturing facilities—also known as clustering. For example, following the 2006 acquisition of the California newspapers in the Bay Area, we shrunk from seven production plants to four.

At MediaNews, we believe in print. Our newspapers and partnerships have, in the past two years, invested almost half a billion dollars in new, modern and efficient printing and mailroom plants.

Why? Because these investments help make our core more efficient as revenue is challenged. Efficiency in our core product is a key building block in our new strategy, because our core newspapers fund our growth of new business.

We have invested in new technologies to become more efficient. We have consolidated key functions into shared services centers, and we have sent high-cost functions overseas to make us more cost-effective.

We are constantly evaluating more efficient ways in which to operate, and we expect to do more.

We have also been more creative about how content is produced, with an emphasis on maintaining quality and localness while sharing resources among newspapers and on making these changes transparent to the reader. Most noticeably, these changes in content gathering and editing have been taking place in our newsrooms in the California East Bay Area and in Southern California. [NOTE: These are also among the most difficult regions for American newspaper publishing these days.]

In San Francisco, we have consolidated reporting and editing functions to eliminate costly duplication, just as we’ve merged production, administration, accounting and circulation of our newspapers.

And in most of our newsrooms, we’re eliminating costly infrastructures as we protect our core news gathering functions and expand online staffing. All these savings are made as we add dramatically to our sales staffs in print, niche and online.

These expense reductions are painful and will continue to be more painful as recession joins structural changes to take valuable revenue away from our newspapers. MediaNews has eliminated hundreds of good people from our company in order to navigate into a changing world. That’s sad, and we are actually criticized in the media for re-allocating resources. But in the future, there will be two categories of newspapers. Those that survive, and those that die. Fond memories of dead newspapers will do nothing for our communities.

And may I deviate to briefly discuss the U.S. industry as a whole.

Some newspapers in the U.S. won’t make it through this transition. Others will print smaller newspapers on fewer days. By my estimate, as many as 19 of the top 50 metro newspapers in America are losing money today, and that number will continue to grow. The large metros are the hardest hit by change, and they’re the most difficult to change.

Too many whining editors, reporters and newspaper unions continue to bark at the dark, thinking their barks will make the night go away. They fondly remember the past as if it will suddenly re-appear and the staffing in newsrooms will suddenly begin to grow again.

Well, as a former journalist, I also wish for the past, but it’s not coming back. The printed space allocated to news and newsroom staffing levels will continue to decline, so it’s time to get over it and move to a print model that matches the reality of a changing business.

These dramatic changes in our business model, I believe, will lead to more consolidation of newspaper ownership as our industry combines costly corporate overheads and moves to repair balance sheets that were created for an earlier performance expectation. Think airlines and department stores.

As consolidation takes place, the industry will work together better to take advantage of new technologies that will lead us to a more modern business model.

In order to reassess everything we do and to identify more opportunities to operate efficiently, MediaNews has asked employees from around our company to participate in what we call the Operations Task Force. We ask our functional experts and leaders throughout the company to form teams, work with their peers around the company and identify further ways of operating more efficiently. We pursued a long list of initiatives over the past several months and have surfaced tens of millions of savings to help preserve the health of our core business. There is more to come, and we’ll do these annually.

Additionally, MediaNews, Hearst Newspapers and Freedom Communications this year retained Bain Consulting to help us re-create the cost structures of our companies.

We asked Bain to answer this question, “If we started this business today, knowing what we know today, what would our infrastructure look like?”

We expect a plan by the end of the summer, and we expect our business to look a lot different next year.

And we still expect to capitalize on revenue growth opportunities by adding salespeople company-wide, in order to increase the numbers of businesses we can reach and to help build their customer bases by advertising. We call this “feet on the street.”

There is much going on in our company in the core newspapers, and there is still much opportunity. The core must stay strong while we develop our new business for the future. Because the core will finance our future.

In our Internet segment, we are stressing growth in audience and growth in revenue. For 2006, the NAA reported Internet revenue growth of 31%, and about 20% in 2007. While the recession has slowed 2008, this is a growth business for us, and we intend to capitalize on it. It is our future.

One key element of growth will be our participation and leadership role in the Newspaper Consortium and its partnership with Yahoo. We have completed the rollout of the full Yahoo HotJobs platform in our newspapers, the first milestone of the partnership. Beyond that, our partnership with Yahoo will, over the coming months include Yahoo becoming the primary provider of search on newspaper websites, including full web search, sponsored search, content match and placement of the Yahoo toolbar on each site.

Newspapers will share with Yahoo the revenue from search. In addition, newspaper website content will be treated preferentially by Yahoo’s News Search product, resulting in increased traffic directed to all newspaper websites. And finally, our newspapers will move all ad serving to the Yahoo ad network platform later this year, enabling our websites to benefit from advertising placed across the Yahoo ad network and from Yahoo’s superior technology.

Currently, Yahoo enjoys the largest share of graphical advertising of any company on the web and we’ll share in it.

We will continue to expand our newspaper websites far beyond the traditional core. MediaNews newspapers have aggressively embraced an “online first” approach, which has resulted in major changes in newsroom cultures and how they operate -- and resulted in substantial increases in our Web site traffic for breaking news, local photos and other con